A General Framework for Cooperation under Uncertainty

In this paper, we introduce a general framework for situations with decision making under uncertainty and cooperation possibilities. This framework is based upon a two stage stochastic programming approach. We show that under relatively mild assumptions the cooperative games associated with these situations are totally balanced and, hence, have non-empty cores. Finally, we consider several example situations, which can be studied using this general framework.Two-stage stochastic programming;cooperative game theory;core

On the Convexity of News Vendor Games

This study considers a simple newsvendor situation that consists of n retailers, all selling the same item with common purchasing costs and common selling prices.Groups of retailers might increase their expected joint profit by inventory centralization, which means that they make a joint order to satisfy total future demand.The resulting newsvendor games are shown to have non-empty cores in the literature.This study investigates convexity of newsvendor games.We focus our analysis on the class of newsvendor games with independent symmetric unimodal demand distributions after providing several examples outside this class that are not convex.Several interesting subclasses, containing convex games only, are identified.Additionally, we illustrate that these results can not be extended to all games in this class.game theory;inventory centralization;newsvendor;convexity

Optimal transshipments and reassignments under periodic orcyclic holding cost accounting

Cataloged from PDF version of article.In a centrally managed system, inventory at a retailer can be transshipped to a stocked-out retailer to meet demand. As the inventory at the former retailer may be demanded by future customers of that retailer and transshipment time/cost is non-negligible, it can be more profitable to not transship in some situations. When unsatisfied demand is backordered, reassignment of inventory to a previously backordered demand can perhaps become profitable as demand uncertainty resolves over time. Despite this intuition, we prove that no reassignments are necessary for cost optimality under periodic holding cost accounting in a two-retailer system. This remains valid for multi-retailer systems according to numerical analyses. When holding costs are accounted for only at the end of each replenishment cycle, reassignments are necessary for optimality but insignificant in reducing the total cost. In most instances tested, the decrease in total cost from reassignments is below 2% for end of cycle holding cost accounting. These results simplify transshipment policies and facilitate finding good policies in both implementation and future studies, as reassignments can be omitted from consideration in optimization models under periodic holding cost accounting and in approximation models under cyclical cost accounting

Core Allocations for Cooperation Problems in Vaccination

Vaccination is a very effective measure to fight an outbreak of an infectious disease, but it often suffers from delayed deliveries and limited stockpiles. To use these limited doses of vaccine effectively, health agencies can decide to cooperate and share their doses. In this study, we analyze this type of cooperation. Typically cooperation leads to an increased total return, but cooperation is only plausible when this total return can be distributed in a stable way. This makes cooperation a delicate matter. Using cooperative game theory, we derive theoretical sufficient conditions under which cooperation is plausible (i.e., the core is non-empty) and we show that the doses of vaccine can be traded for a market price in those cases. We perform numerical analyses to generalize these findings and we derive analytical expressions for market prices that can be used in general for distributing the total return. Our results demonstrate that cooperation is most likely to be plausible in case of severe shortages and in case of sufficient supply, with possible mismatches between supply and demand. In those cases, trading doses of vaccine for a market price often results in a core allocation of the total return. We confirm these findings with a case study on the redistribution of influenza vaccines

Benefits of Collaboration in Capacity Investment and Allocation

This paper studies capacity collaboration between two (potentially competing) firms. We explore the ways that the firms can collaborate by either building capacity together or sharing the existing capacity for production. We consider cases where the two firms' products are potential substitutes and also where the firms' products are independent. We find that a firm can benefit from collaboration even with its competitor. Moreover, the firms do not have to jointly make the production decisions to realize the benefits of collaboration. We consider a model where firms build capacity before demand is realized and make production decisions after they receive a demand signal. They can potentially collaborate in jointly building capacity and/or in exchanging capacity once they receive their demand signals. Interestingly, we find that having firms compete at the production stage can result in firms deciding to build less overall capacity than if they coordinated capacity investment and production. Also, we find that though collaboration in capacity investment is bene cial, collaboration in production using existing capacity is often more beneficial. The benefits of collaboration is largest when competition is more intense, demand is more variable and cost of investment is higher.http://deepblue.lib.umich.edu/bitstream/2027.42/94207/1/1179_HAhn.pd

Inventory Sharing and Demand-Side Underweighting

Problem definition: Transshipment/inventory sharing has been used in practice because of its risk-pooling potential. However, human decision makers play a critical role in making inventory decisions in an inventory sharing system, which may affect its benefits. We investigate whether the opportunity to transship inventory influences decision makers’ inventory decisions and whether, as a result, the intended risk-pooling benefits materialize. Academic/practical relevance: Previous research in transshipment, which is focused on finding optimal stocking and sharing decisions, assumes rational decision making without any systematic bias. As one of the first to study inventory sharing from a behavioral perspective, we demonstrate a persistent stocking-decision bias relevant for inventory sharing systems. Methodology: We develop a behavioral model of a multilocation inventory system with transshipments. Using four behavioral studies, we identify, test, estimate, and mitigate a demand-side underweighting bias: although inventory sharing brings both a supply-side benefit and a demand-side benefit, players underestimate the latter. We show analytically that such bias leads to underordering. We also explore whether reframing the inventory sharing decision reduces this bias. Results: Our results show that subjects persistently reduce their order quantities when transshipments are allowed. This underordering, which persists even when a decision-support system suggests optimal quantities, causes insufficient inventory in the system, in turn reducing the risk-pooling benefits of inventory sharing. Underordering is evidently caused by an underweighting bias; although players correctly estimate the supply-side potential from transshipment, they only estimate 20% of the demand-side potential. Managerial implications: Although inventory sharing can profitably reduce inventory, too much underordering undermines its intended risk-pooling benefits. The demand-side benefits of transshipment need to be emphasized when implementing inventory sharing systems

A Technical and Business Perspective on Wireless Sensor Network for Manufacturing Execution System

Motivated by the complex production management with difficulties in error-prone assembly system and inaccurate supply chain inventory, this paper designs a novel manufacturing execution system (MES) architecture for intelligent monitoring based on wireless sensor network (WSN). The technical perspective includes analysis on the proposed manufacturing resource mutual inductance method under active sensing network, appreciation technology of multisource information, and dynamic optimization technology for manufacturing execution processes. From business perspective, this paper elaborates the impact of RFID investment on complex product by establishing a three-stage supply chain model that involves two suppliers carrying out Stackelberg games (manufacturer and retailer). The optimal cost threshold values of technology investment are examined for both the centralized and the decentralized scenarios utilizing quantitative modeling methods. By analyzing and comparing the optimal profit with or without investment on WSN, this paper establishes a supply chain coordination and boosting model. The results of this paper have contributed significantly for one to make decision on whether RFID should be adopted among its members in supply chain. The system performance and model extension are verified via numerical analyses